Growing Singapore's fund platform

28 February 2017

The past decade has seen Singapore emerge as an asset management gateway to Asia for fund managers. Such emergence is underpinned by an excellent financial, legal and regulatory infrastructure, coupled with an extensive trade, investment and tax treaty network. For example, fund managers enjoy, amongst other things, attractive tax incentives for setting up operations in Singapore.

Some interesting figures can be gleamed from the 2015 Singapore Asset Management Survey conducted by the Monetary Authority of Singapore (MAS):

  • Singapore’s assets under management (AUM) grew to S$2.6 trillion in 2015, a 9% increase year-on-year and almost doubling the AUM from 2010 ($1.35 trillion)
  • 80% of the total AUM is sourced outside of Singapore, and 68% of the total AUM is invested in the Asia-Pacific region
  • A total of 628 fund managers are registered or licensed with the MAS
  • Private equity/venture capital and real estate drove the increase in alternative AUM expansion for 2015

Singapore’s participation in the fund passporting arrangements offered under the ASEAN Collective Investment Scheme 2 regime is envisaged to facilitate access to regional markets of retail funds constituted in Singapore through a streamlined authorisation regime. These arrangements hope to achieve economies of scale within a framework that adopts common rules and promotes certainty of tax, legal and accounting treatment.

A Great Leap Forward In a keynote address by the Senior Minister of State for Finance at the Investment Management Association of Singapore’s 17th Annual Conference held in Singapore on 16 March 2016, the Minister announced plans to introduce a new regulatory framework for open-end investment companies (OEIC) in Singapore.

To date, traditional funds domiciled in Singapore have adopted either the private company or unit trust model. However, there are drawbacks in each of these structures –the corporate vehicle lacks variable capital structures and presents some operational limitations in relation to the issue and redemption of shares, and dividend distribution whilst a unit trust is not always able to access double tax treaties.

As a result, while Singapore has been successful in drawing asset managers to set up operations in Singapore, the ramp-up in terms of Singapore-domiciled fund vehicles has advanced at a slower pace with many Singapore-managed funds continuing to be domiciled in, amongst others, Luxembourg, Delaware and the Cayman Islands. As the Minister observed, asset managers are increasingly consolidating fund management operations as well as fund domicile and the OEIC initiative is another arrow in the Singapore Government’s quiver to further entice both funds and fund managers to re-locate and set up in Singapore.

Indeed, in an industry survey conducted in 2013, approximately 90% of the respondents were in favour of the OEIC structure 3 , highlighting the phenomenally successful Luxembourg experience with the UCITs and non-UCITS structures.

Currently there is a lack of information on the proposed OEIC framework. The proposal will likely address issues such as variable capital structures within the legal entity, the legal characteristics of each sub-fund or compartment 4 and the dividend distribution and/or redemption mechanics 5.

Based on experience in other jurisdictions which have introduced similar structures 6 , the OEIC regime will not only present cost savings and enhanced administrative efficiency to asset managers 7 , it crucially plugs existing gaps in the choice of legal entity in Singapore – that of the umbrella and sub-funds structure where assets and liabilities of each sub-fund can be shielded from that of other sub-funds.

Umbrella structures allow managers to pursue multi-strategies and target different clientele, all within the parameters of a single legal entity. If established under current corporate entity laws in Singapore, for example, through the use of different share classes, assets invested into by one class of investors nonetheless remain exposed to liabilities of other share classes insofar as third parties are concerned. The alternative of using separate special purpose vehicles to achieve such liability segregation would limit the risk of contagion but increase administrative cost.

The OEIC framework is targeted to be rolled out by March 2017. It is a development that will be closely-monitored and will further bolster Singapore’s ongoing efforts in becoming a premium destination for managers and investors alike.

Authored by Daniel Yong, Partner at Morgan Lewis Stamford.

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